Nokia Corporation (NOK) Recovery Dependent Upon Windows Phone 8: BAML

Nokia Corporation (NYSE:NOK)’s recovery is dependent on the success of Microsoft Corporation (NASDAQ:MSFT)’s Windows Phone 8, as the feature phone market significantly declines, according to analysts at Bank Of America Merrill Lynch.

The analysts believed that the Finnish handset manufacturer is one of the most vulnerable companies in the three key trends in the smartphone market. The trends include the structural decline of feature phones, intense competition from vertically integrated white box OEMs, and the limited uptake of Windows Phone OS.

Nokia Corporation (NYSE:NOK) is expected to report an adjusted EBIT margin of -2.7 percent for D&S next year, compared with the consensus EBIT margin of +0.2 percent, as a result of the increasing decline of the feature phone market, according to the analysts at Merrill Lynch.

The analysts estimated the Nokia Corporation (NYSE:NOK) generates 65 percent of its D&S sales from feature phones and 89 percent of its units sales this year will come from the segment. They projected that the value of the feature phone market will decline by 50 percent between FY12E and FY14E because of the single digit new subscriber additions and the cannibalization of mid-range touch/ Qwerty models by sub- $100 Android smartphones.

The analysts also noted that the white box OEMs selling dual core Android models with 4 to 4.5-inch displays at $150 is a threat to the Asha and Lumia product lines. According to them, the popularity of Asha and Lumia might decline due to inferior hardware specifications and limited app choices for consumers. They also emphasized that the offering price of the recently introduced Lumia 620 at $249 is expensive, considering the limited app choice and the immaturity of the Windows Phone 8 operating system.